Cash grab on seniors reversed after outrage

Jonathan Swan, Fergus Hunter

Money-siphoning policy scrapped: It was initiated under then Deputy Prime Minister and Treasurer Wayne Swan in 2012. Photo: Louie Douvis

The federal government will reverse Labor's policy of taking money from people's ''unclaimed'' bank accounts after just three years.

The money-siphoning policy, designed in 2012 when former treasurer Wayne Swan was keeping alive his promise of delivering a string of budget surpluses, angered consumers who found money had vanished from savings accounts after what they considered a short period of inactivity.

Interviews earlier last week quoted elderly Australians who were shocked to discover their savings had been taken by the government.

Senior government sources said the Coalition was certain to scrap the three-year policy, which collected $520 million for the budget in 2012-13. The only question being debated was how long an account should remain dormant before the government intervened.

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Either five or seven years was considered most likely, but the government would reserve judgment until Finance Minister Mathias Cormann had consulted with consumers and the banking sector.

Opposition Leader Bill Shorten, financial services minister at the time, stood by his policy on unclaimed savings, pitching it as a consumer protection measure.

So did shadow treasurer Chris Bowen, though he acknowledged one concern. He said Labor had written to the Australian Securities and Investments Commission, the organisation that collected the ''unclaimed'' savings, to ask why ''it is taking so long for some consumers to claim their money back''.

Mr Bowen blamed this on the government's budget cuts to ASIC.

Mr Shorten added: ''This is about protecting people's savings to ensure it's not eroded by bank fees and changes.''

But a number of Labor shadow spokespeople were privately embarrassed about the policy and, when asked about it, one frontbencher thought the bank policy was still seven years.

Others wished Mr Shorten would stop feeling beholden to a policy designed in financially troubled circumstances. One compared the bank siphoning policy to the Gillard government's ''wrong'' decision to cut welfare payments for thousands of single mothers.

The Coalition had been critical of the policy since it was announced. Senator Cormann called it ''bad policy'' made by a government ''desperate for more cash because they made such a mess of the budget''.

He released a discussion paper in May and said he had ''received a lot of feedback from people right across Australia who are very unhappy about this attack on their bank accounts''.

While the consultation period remained open, the Coalition was committed to undoing the policy. This would come with the enthusiastic backing of the banks, but consumer groups were divided.

Consumer advocacy group Choice supported Labor's position. Spokesman Tom Godfrey said account collection was ''a good thing for consumers whose funds are in products with high fees that can eat away at the balance of an inactive account''.

But Katherine Lane, principal solicitor at the Financial Rights Legal Centre, disputed that view. She warned people not to ''assume that all bank accounts are charging tonnes of fees because I think that has improved in recent years. Fee erosion is an issue but I do think in many cases it is just a furphy''.

Ms Lane condemned the lack of notice required from the government or the bank.

''You can't be going to the bank and your money's just gone. It's an enormous breach of trust,'' she said.